WSJ and IBD agree — Obama’s a lightweight on tax policy

posted at 12:35 pm on April 18, 2008 by Ed Morrissey

The Wall Street Journal and Investors Business Daily certainly paid attention to the so-called “issues” portion of last Wednesday’s debate. Perhaps that’s why Barack Obama has decided to focus his attention on the stump to the supposedly irrelevant questions in the first part of the debate — because an analysis of his answers on taxation and investment show him as hopelessly over his head on actual policy. The WSJ accuses Obama of “tax evasion”:

Time and again, the rookie Senator has said he would not raise taxes on middle-class earners, whom he describes as people with annual income lower than between $200,000 and $250,000. On Wednesday night, he repeated the vow. “I not only have pledged not to raise their taxes,” said the Senator, “I’ve been the first candidate in this race to specifically say I would cut their taxes.”

But Mr. Obama has also said he’s open to raising – indeed, nearly doubling to 28% – the current top capital gains tax rate of 15%, which would in fact be a tax hike on some 100 million Americans who own stock, including millions of people who fit Mr. Obama’s definition of middle class. ….

Either the young Illinois Senator is ignorant of this revenue data, or he doesn’t really care because he’s a true income redistributionist who prefers high tax rates as a matter of ideological dogma regardless of the revenue consequences. Neither one is a recommendation for President.

I made this same argument yesterday. Obama actually made this clear in his debate answer: he wants to raise capital gains tax rates because it’s fair to do so. After all, the government has no compelling reason, in Obama’s view, to offer a lower rate on risk and investment than it does on the income generated by risk and investment. Investors and economists see this differently, as King Banaian and I discussed on my show yesterday. Disincentivizing risk by raising the tax on its success will mean less capital investment and fewer jobs as a result — which might make the secretary unemployed rather than receiving that income in the first place.

IBD doesn’t focus on the evasion as much as it does the ignorance and envy that drives this kind of economic vision:

Indeed, data from Congress’ Joint Committee on Taxation show 20% of those with capital gains in 2005 had annual incomes less than $50,000. So Obama’s “tax-the-rich” plan to jack up cap gains rates would in fact become a huge middle-class tax hike.

Add to this his idea to lift the Social Security tax cap on incomes above $97,000, which would hit many of the same people, and you get the idea that Obama doesn’t understand economics at all.

Maybe it’s that he and his wife, Michelle, just reported $4.2 million in income for the last year — with little or none of it in the form of capital gains.

Whatever the case, he obviously doesn’t get it. He’d rather lash out at people he thinks are rich, even if it means bringing in less revenue to the federal government, a point that Gibson clearly made.

Democratic populists like Obama have failed to recognize a transformation in America. The investor class used to comprise only the richest Americans, and even as long ago as when Obama was first entering college, that remained true. However, thanks to changes in tax policy on long-term savings plans such as IRAs and 401Ks, middle America put its future into the markets. Over 70% of Americans now invest in stocks and bonds, and therefore have exposure to capital-gains tax changes.

That won’t stop Obama from weighting down the engine of economic growth or increasing taxes across the entire spectrum of American voters. He wants fairness, which translates to massive redistribution of wealth via the least efficient channel: government bureaucracy. It’s a statist solution, unsurprising from someone who sings a populist tune on the campaign trail.

Blowback

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How dare anyone put the idiocy of Obama’s economic plans on direct, public display!

Wineaholic on April 18, 2008 at 12:43 PM

Yes, when you consider how poorly Obama answered the economic policy questions, it’s ironic that’s he’s been whining about not having been asked more policy questions in the debate. He should be grateful he wasn’t given more time to expose his ignorance!

Unfortunately all those idiots who are retirement eligible, retired or wish to retire one day out there who will vote for obama haven’t done the math. Most of them will see their tax rate double or more when they start to rely on the income provided by their 401Ks.

This works to Hillary’s benefit. All the attention is on Barry’s half assed economics, and she skates along the edge of the ice with similar economic plans. Notice she said she would only raise it to 20%. His Marxism is becoming apparent; her’s is better disguised, but the results would be the same. I hope McCain doesn’t let Senate collegiality stop him from pointing that out.

However, thanks to changes in tax policy on long-term savings plans such as IRAs and 401Ks, middle America put its future into the markets. Over 70% of Americans now invest in stocks and bonds, and therefore have exposure to capital-gains tax changes.

Just a technical point — Capital gains realized in 401ks and IRAs are not subject to taxes, correct? Or do people who have their money in mutual funds get hit with them anyway since the fund pays them? Either way it is arguable that people first gained exposure to investing through they vehciles, and then once comfortable with investing, now have some of their savings in trading accounts. So your point still stands.

How How They Tax Us, Let Us Count the Ways
An Epiphany on Social Security:

I don’t know why I never realized this before, but when it comes to the payroll tax, you get whacked twice. Say you make a $100k. The government takes out $6k for social security (through the payroll tax). But, when it comes time to pay your income tax, you are taxed on the full $100k. Between $77k and $160k the tax rate is 28%. So that $6 grand that goes into SS really costs you $7,680. (Not to mention the $6 grand your company had to pay to match — which, arguably they could have paid to you directly.) Then the government borrows the money from the trust fund which they pay back with money they earn from our income taxes. So each SS Trust fund dollar really costs us two dollars plus interest. Then, when we finally retire and collect our social security, they tax us again.

Obama’s payroll tax hike is going to make things much, much worse. When are people going to realize that we need to privatize the beast?

Just a technical point — Capital gains realized in 401ks and IRAs are not subject to taxes, correct? Or do people who have their money in mutual funds get hit with them anyway since the fund pays them? Either way it is arguable that people first gained exposure to investing through they vehciles, and then once comfortable with investing, now have some of their savings in trading accounts. So your point still stands.

Spolitics on April 18, 2008 at 1:23 PM

401Ks and traditional IRAs are pre-tax and grow tax free… so 100% of the capital gains are tax free and reinvested. Over 30-40 years this makes a huge difference.

The big point about capital gains tax hikes decreasing revenue is this: capital gains taxes are totally voluntary. Whatever is left over after maxing out every tax-free device you can doesnt have to be exposed to capgains. People will put all their high capgains yielding stocks inside tax free accounts and then not sell individual stocks during times of higher taxes.

Government can force you to pay income taxes- they cant force you to take capital gains.

Indeed, data from Congress’ Joint Committee on Taxation show 20% of those with capital gains in 2005 had annual incomes less than $50,000. So Obama’s “tax-the-rich” plan to jack up cap gains rates would in fact become a huge middle-class tax hike.

Many of those people are either married with taxable income less than $65,100 or single with taxable income less than $32,550. Those folks are paying a marginal 15% with or without the change. Without finer-grained data regarding this, you can’t really make the claim that this is a huge tax hike on people making less than $50,000; whatever its drawbacks, I doubt very much that it is.

…you can’t really make the claim that this is a huge tax hike on people making less than $50,000; whatever its drawbacks, I doubt very much that it is.

It will be felt by retirees who, since they don’t work, earn a larger portion of their money from investments. Also, while individuals may not pay a “huge” amount more in taxes, when you add it all up it does amount to a huge tax increase on “the middle class.”

Hey look at the good side. He previously had $75,000 as the threshold for feeling a tax increase. That’s what he told Maria Barltaromo. (Sorry if I spelled her name wrong.) It’s now up to $200,000-$250,000.

This guy is completely clueless and a total JOKE! Becoming POTUS would be the worst nightmare this country could ever endure in terms of an election. God help us all!

The reason that high Cap Gains taxes produce lower revenue is not obscure or mysterious, it’s as clear as can be.

Democrats absolutely REFUSE to accept the simple reality, and the translation of “it’s more complex than that” is actually “I don’t like reality so I’m going to pretend it isn’t so.”

I don’t know that it would be strictly true to say that I hate democrats, but I do sure wish they would shut up and find something productive to do rather than constantly screwing things up for everyone else.

And Obama’s a moron – somebody ask him to explain how putting a disincentive on Capital Investment is “fair” to anyone. Moron.

Obama hails from the South Side of Chicago. Those residents are like the Katrina crowd or the Detroit crowd that have government dola as a key source of income. As pseudo victims, they rationalize higher taxes on risk investment “evens the playing field”.

They just can’t accept that some folkes are more capable in the money making game, and other are more capable in ball games. They can’t understand that choking down the pipe causes less water to flow for everyone.

Getting off the dola cycle takes the ability to face the facts and accept reality for what it is. Very hard for some, especially percieved victims.

Ben Stein is smarter than me and makes more money. I’m OK with that. Who’s fault is it? Not his or mine.

Chuck Schick on April 18, 2008 at 1:53 PM
WRT SS taxes that the govt takes in your scenario. Imagine what I could do with that $12K in a 401K? More so, since most people typically invest 10% pre-tax into the 401K as a means to lower taxable income. So, now we’re looking at a potential $25K that I could be socking away in my nestegg, thus more than doubling the comparative savings. Granted of course that ceilings and other limits are lifted.

Instead, the gubmint takes more than 1/2 of MY money for its grand social redistribution plan while deigning to perhaps give me something back when I get old — assuming of course that they haven’t decreased benefits and payouts several times over at the end of the road.